House flipping is defined as the purchase of real estate with the intent of quickly reselling it at a higher price
. The whole process is normally completed in a matter of days or just a few months. Some buyers will simply purchase the property and immediately resell it at a higher cost. Other investors look for homes that are below market value or whose cost can be increased after a few renovations. One must be careful to research the property prior to buying for prevention of loss if the home requires more input than it's worth.
This will prevent financial loss if the home requires more input than it's worth. There are several reasons why homes may be sold at lower prices such as divorce, death, bankruptcy or loss of employment. Foreclosures intrigue investors due to banks wanting to get whatever they can for the property. The lending institution normally sets the minimum bid and takes ownership if no one bids above that price. Estates sales occur when a family wants to rid themselves of a burdensome home.
Investors wanting property in need of repairs often search home listings. Others build relationships with realtors that may notify them when a home comes on the market in poor condition. Communities surrounding the property benefit greatly by an investor doing renovations. Communities greatly benefit when an investor does renovations on a neighboring home. When an investor makes restorations, communities surrounding the property reap the benefits. The neighboring homes increase in value as the real estate becomes more appealing. Investors should acquire loans for more than the house price to insure money is available for repairs.
Before investing in house flipping, make sure you understand the tax rules. There are federal and state income taxes to consider as with all obtained assets. The IRS sees investment profit as capital gain regardless of how it was made. Property owned for less than a year, is seen as a short-term gain and taxed as high as 35%. People that hold the real estate longer than a year cut that cost to 15%.
The idea of house flipping is to sell the home quickly and this requires taking the larger tax burden. There is still money to be made and all expenses will need to be considered before putting a set selling price on any real estate.